Business lessons from the Uber economy

Each December, we close the year with a look ahead in our FutureView LIVE Webinar, which focusses on the emerging dynamics that are shaping the future of the consumer marketplace. In our December 2014 FutureView LIVE, Executive Chairman J. Walker Smith introduced the Uber All Economy, which is transforming consumer business models through an innovative combination of digital technologies and personal services. Uber is the most famous example, but it is just one of the many companies now reinventing every category. Here are selected highlights from his presentation.

Uber is making headlines, good and bad. It’s indicative of its impact. Everything it does is under scrutiny because its business model is crashing the old way of making money in every sector of transportation. What’s truly newsworthy about Uber is the business model revolution it is pioneering. What Uber is doing today is coming to all categories tomorrow.

The Uber business model

Boiled down to its essence, the Uber business model comprises just three things.

The first is personal services. Uber itself is a personal service of drivers. In other categories, companies with an Uber All business model are substituting services for products. For example, Washio and FlyCleaners are converting consumers from buying laundry products to using their clothes-washing services.

The second is on-demand availability. Mobile apps have revolutionized this, but at root it’s about immediacy of fulfillment, however that is best delivered. It is a fundamental shift from a “go to” marketplace where consumers have to go to someplace to get the benefit to a “come to” marketplace where the benefit or service comes directly to consumers, and immediately so at that.

The final is pricing by usage. Or to put it another way, availability on-demand that is priced to demand. Most pricing today is based on accumulation – stocking up or subscribing or collecting. The Uber All business model sells and prices by the slice – no more than a consumer needs in that moment.

Occasions take center-stage

Pricing by usage puts occasions at the center of the value equation. Not people or segments or products, but occasions. Most occasions will be ordinary, so pricing will have to be cheap. But some occasions will be extraordinary and special, and thus able to command a premium.

This unlocks value-added opportunities by shifting from flat rates that are the same no matter the occasion to tiered rates that match demand on each occasion. Uber calls it “surge” pricing. There are no “surge” consumers or drivers or cars, just “surge” occasions for which “surge” pricing applies to all consumers.

Scarcity of time or money does not just push people downmarket. It also pushes them upmarket. When there’s only a little time or money, spending it on something average is as big a waste as overspending on something bad. Neither offers the full value that people want for each scarce minute or dollar. Consumers want “superstar” as much as “super-sale.” Brands need a platform that opens up both. The Uber All business model does that, and more.

Service as value

Uber All is a tight fit with every aspect of the marketplace. Service has become the only kind of value that matters. Immediacy is the table stakes of service. Personal services are the future of work in a labor market in which robots and computers will do everything else. Household budgets, beleaguered by stagnant wages and rising expenses, can more easily afford services priced by usage.

Consequently, every category is being scrutinized for Uber All potential. On-demand mobile services companies are taking off. One survey of investors and experts foresees grocery products and retail, home services, and events and entertainment as the next wave of categories most likely to follow the first wave of restaurants, transportation and hospitality. Already, investors have poured nearly $5 billion into start-ups with an Uber All business model, including over $2 billion in the past year alone. These companies are moving aggressively to take share and customers from incumbent brands swimming against the tide with their traditional business models.

Competing in the Uber All Economy

But more than a threat, the Uber All Economy is an opportunity for brands ready and willing to jump ahead of the curve. Three things unlock its potential.

One is services. Link the value of your product to a service, and then innovate your service offering.

Two is immediacy. Make speed and convenience the core operating principles of your business.

Three is occasions. Focus on the moment and price accordingly.

The lessons of Uber’s innovative business model are not lost on consumers. People see new and better possibilities in everything. Expectations are changing, and that means new imperatives for success in the Uber All Economy.